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Deutsche and Lyxor in major physical ETF U-turn

by Emma Dunkley on Nov 19, 2012 at 07:44

Deutsche and Lyxor in major physical ETF U-turn

Deutsche Bank and Lyxor Asset Management are making their first foray into the physical exchange traded fund (ETF) space, marking a major turn for the stalwart swap-based providers.

Db X-trackers, the ETF arm of Deutsche Bank and second largest issuer in Europe, is launching a range that allows investors to choose between physical and synthetic replication of major equity benchmarks.

The initiative, which will see the first of the new funds launched in December, will allow investors to choose between physical and swap-based db X-trackers ETFs tracking German, US, Japanese, British and eurozone equity markets.

The new physical, or ‘direct replication’ products will include the identifier ‘DR’ in the fund names.

‘This is a significant step. For the first time investors will be able to go to a single provider and choose not only the type of market exposure they want, but also the type of tracking method they feel most comfortable with,’ says Thorsten Michalik, global head of db X-trackers.

‘Some client segments have shown a preference for direct replication, and as a provider we aim to meet that demand.’

In terms of fees, db X-trackers said the new physical fund tracking the EuroStoxx 50 will have a total expense ratio (TER) of 0.15%, versus its swap-based or ‘indirect replication’ fund, which has a 0% TER.

The provider said for other ETFs in the new range, fees will be the same for the direct and indirect versions.

Physical ETFs are also able to engage in securities lending and db X-trackers said the new direct replication funds will lend securities, which will help offset tracking difference.

Although the practice of securities lending can reduce over-all costs, it also introduces counterparty risk, in the event the borrower of the stock defaults. Db X-trackers said it intends to publish the underlying collateral on the website, on a daily basis.

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1 comment so far. Why not have your say?

Not all ETF's are the same

Nov 19, 2012 at 10:53

...and the major U-Turn was what exactly?

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